Before you invest in a cleaning franchise or launch your own business, listen to this. Listen to the top 5 benefits and 5 drawbacks of owning a domestic cleaning franchise territory. Find out if you ought to buy into a cleaning franchise business or start your own from scratch and how to get help starting a business if you do.
12 December 2022
TOP 5 PROS & CONS of Buying a Domestic Cleaning Franchise
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Opportunity Awaits podcast Episode Transcript
Aaron Henriques: Are you thinking of starting or buying a business? And think that a franchise could be a good way of introducing yourself to business? Cleaning franchises are super common. And that's what I'm going to talk about today.
[00:00:14] They're usually quite easy to get started with a relatively small amountof investment. I started a cleaning franchise 10 years ago as a franchisee. And it was my first like proper business. And I did that while I was working full-time as a police officer in London. Eventually I went on to quit my job. And I have a ton of free time now, which is great. As we've everything, if there's upside, there's also a bit of downside. So here are my top 5 pros and cons of owning a domestic cleaning franchise. So listen in.
[00:00:53] I'm going to start with the cons. Okay. Cause I want to leave the positive stuff to the end because I don't want to end on a negative because it might just completely put you off. So I'll start off with the cons. I will end with the positives and then give a bit of a summary.
[00:01:06] Aaron Henriques: Now, these are in no particular order, mostly because I Couldn't be bothered to work out, which is like the worst of the worst, but you can decide what's the worst of them all yourself, it might be different for everyone.
[00:01:18] So the first problem for me in terms of con is
[00:01:24] it can be really limiting on how you operate your business and how you innovate your business. And what do I mean by this? With the cleaning franchise that I'm with. When I started, they didn't accept direct debits, they had no card payments, they didn't even have an online booking system. Now to me, that was all just crazy. And it took a while with me bugging them a lot. Pushing hard, pushing up against the "this is how we've always done it" sort of mentality where people are sending cheques and working off of spreadsheets and stuff like that to run the business, which is really weird and bizarre.
[00:01:59] [00:02:00] But that was one of the things that I wanted to get introduced and it took a long while to get that done. Now, if this was my own business, not within a franchise. I could've just got it done like that. And I would have had no one to argue with.
[00:02:12] So something else in my cleaning franchise is you cannot increase prices for existing clients. Now that's sold as a unique selling point (USP), which is very unique indeed, because we're probably the only company in the world that doesn't increase their prices from time to time. Particularly when we're facing inflation as high as, as high as it is. I've got clients who've been with me for over 6 years and bearing in mind, I've not been able to increase the
[00:02:37] amount they pay me in all of that time. That's another thing which can be problematic if they have policies like that, which they're not willing to change. And then there's other policies that you have to follow that you may not agree to. So that's con number one in how you're limited in how you operate and can innovate within the franchise.
[00:03:00] So number two, it might seem really obvious. Because by buying a franchise, generally speaking if it's something like cleaning franchise, you will have a defined area, which is just your area where within that franchise, nobody else can operate. That's really how it should be. If you're working with one where.
[00:03:19] You can overlap. That's a bit problematic, which I can get into some other time, if you feel like you need to know why that would be a problem. But. If you're restricted to a specific area and you're not able to expand without buying other licenses. Then you're probably going to find that if you do want to expand to your next door, so you've, let's say you've built up your first territory and you've built it up really well when it got to the capacity where it is, and you want to just expand out slightly
[00:03:46] into the geographical area to where you are it's quite likely that someone else already owns that territory license. Unless you're really lucky or in quite a new franchise. And so you're not going to be able to expand in that [00:04:00] way. You may have to like I have just get a random area somewhere else, completely different. So for example, I operate in London, I operate in Birmingham and Walsall,
[00:04:09] Cardiff and Newport. They're all really spread out for people who know the UK geography. And if you don't know UK geography, go on Google maps and have a look at those places and see for yourself, they're really spread out.
[00:04:20] Aaron Henriques: And by being in that specific area, and by having a license, which allows you to trade in specific areas like postcodes / zip codes, if you're from the states. It means you cannot trade outside of that. So you are really limited, even if you do get inquiries from outside, even if it's like a really big client, you need to pass that on to the person next door to you. However, they will also do the same to you. Or should do!
[00:04:47] Now, if you're looking at really big cities, you may think that getting a territory license in somewhere like London, may be fantastic. And that's because of how many people are there, how condensed it is the population. But what you'll tend to find is similar to my franchise, I think London is broken down into 25 or 30 areas. Something like that.
[00:05:09] Each one is a individual license. Now it's really problematic. For example, when I started up my Birmingham area, in terms of revenue and clients overtook my London area that I have for nearly 10 years within six months
[00:05:24] with my new area in Birmingham. And that's because I own the whole of Birmingham. Whereas my London area is really small. It's a really small part of London and you've got so much competition that covers such a wide range. They're not limited. Your competition is not limited to such a really small area. So for me, I would definitely say avoid big cities, particularly you're only going to get a small area of it. So you are restricted to specific area and you may not be able to expand. So that's number two.
[00:05:54] Number three. It can be a really large upfront investment, particularly if [00:06:00] you're not used to investing. If you're not used to putting money into things where you're going to see that money back later down the line. And there's ongoing fees also to buy a franchise license.
[00:06:10] For example, you may be able to buy a cleaning franchise license for £/$10,000 or £/$50,000 per territory. So that is per area that you can trade. Or anywhere in between, of course, it's not just those two numbers. And what you get for that effectively is some training , 300 page ops manual, the license to trade in a specific area. And usually you get like a network of other franchisees, which can actually be really beneficial if you're just starting out.
[00:06:37] But we're here on the cons. So we let's talk about that. The monthly payments are to the franchisor. And generally speaking, it will be based on your revenue. That is not your profits. They don't care if you make profits. They will get paid based on your revenue, a percentage of that.
[00:06:56] Or a minimum monthly fee, regardless of how much you make. Now, let me repeat that. You will pay a minimum fee regardless of how much you make. So if you are running a loss like I did for a really long time, and I was going to sack it in. If you're running a loss and you cannot afford to keep that loss going...
[00:07:18] for example, I had some months where I was putting in like six, 700 pounds a month. It doesn't sound like much, if you're running like a bigger business, but if you're new to this. And all you have is your salary from your normal job. And then you've got this "business" that is making you a loss and you're having to put money from your salary into it, that can be problematic clearly.
[00:07:39] So you need to bear that in mind that you need to be able to hit a minimum revenue figure, to be able to cover the fees, plus you also pay a percentage if it is over the minimum. So that's number 3. Being a large upfront investment and ongoing fees.
[00:07:55] Number four. Is... by joining a [00:08:00] franchise. And I understand why, but you cannot just decide. Okay, now I know how this all works. I'm going to leave and start on my own. No. You will find yourself in the courts very quickly. Your business will be shut down and you'll be sued to hell most likely by your franchisor. So the contract usually prevents.
[00:08:19] And I say usually because I cannot speak for every franchise contract, but I don't know why they wouldn't. It usually prevents you from operating in any competing area or service, within a period of time after the contract ends. It may prevent you from starting certain types of businesses, which are not obviously linked to the franchise. The customers and cleaners that you've worked really hard to acquire over many years, potentially. You can't just take them away because your franchise agreement will probably prohibit you from doing so.
[00:08:49] And you're likely if you decided you wanted to leave at any one point, like a lady I was speaking to, I was looking at buying her area, quite recently. She wanted to leave, the franchisor said, yeah, no problem. But you still owe me, like I think she had 4 years of 3 year's worth of franchise fees left, which only worked out about £12,000 as like the minimum fee.
[00:09:10] But that's what he wanted for for her to exit the agreement. And that's pretty normal that's to be expected because that's what you sign up to when you're joining a franchise. So you're potentially going to have to pay the remaining time on a contract to exit, which could be 5 years or 10 year contracts, usually of your fees.
[00:09:30] Okay, so that is number four. You cannot just leave and go and start on your own. Or even help someone else for that matter, you cannot help like a family member start up their own thing because you, if you're using anything that has been learnt from your franchise. Again, you could be in breach your contract. You could lose your license, so you lose your money, lose your license, and also potentially have to pay the franchisor a load of money.
[00:09:55] So that's number four.
[00:09:56] Number five. The running costs are [00:10:00] higher, even for domestic cleaning franchise than most people realize. And the earning potential is quite low in this industry. The margins are pretty low. And it takes a while to make a profit.
[00:10:11] Now there's lots of franchises that I've seen out there, which they advertise certain amounts that you need to get started. They are working on a, probably at a figure that was from like 10 or 15 or 20 years ago. And also working on the minimum that was needed at that time, potentially for the best area ever. You can probably expect that whatever figure the franchise tells you that you need to get started as like working cashflow, once you've bought the licenses and done the training.
[00:10:42] You can probably 3x to 5x times X that as to what you really should have in place to be able to get your business to profit. Now it's not just about money because you then need to know what to do with that money. And hopefully the franchise has given you systems that actually work and have all of the supplies and everything that you need.
[00:11:03] To be able to help you get to where you need to be. But 3x to 5x times is probably what you can say is what you will need as working cashflow, once you started and once you purchased the license,
[00:11:17] So I mentioned about low margins now, general domestic cleaning, which is the lowest entry point for domestic cleaning companies. General domestic cleaning margins are pretty low, You're talking about your £15, £20 quid an hour But remember you have to pay the cleaners. Okay. So you have to pay the cleaners and you have lots of overheads, which you probably don't know, you don't know yet. And that's one of the things where your end margin ends up being low and after all the taxes and stuff, it's so small you might be wondering what was the point?
[00:11:45] Just bear that in mind, when you're doing your costs analysis, to make sure that you've actually considered everything and you may need help. And I'll talk about that later.
[00:11:53] General domestic cleaning margins are pretty low. You will be paying a fixed fee of the revenue, which you've already [00:12:00] said to the franchisor and national marketing levy, that could be a fixed fee, which is really small. Or it could be like a percentage of revenue. Really big, good franchises will charge 5% of revenue towards the national marketing efforts. Other franchisees just charge a really small. Meaningless fee. It depends on where you're going, but these fees are based on your revenue, not your profits. You need to remember that.
[00:12:25] Wherever you make a profit or not, you still need to pay them. So that also eats down on the profit margins. You are restricted on the types of service you can offer within your franchise. So you may see something where you could add additional benefit. You could add additional, clients every revenue from your existing clients by adding on this service you may be prevented from your franchise because it could potentially put other franchisees at risk of being sued or something like that. Further down the line.
[00:12:54] Because of something that you're trying, or it could damage the brand. So you may try something untested. And there's a big court case that comes out of it and it damages the brand completely. You could then be liable for them, so they won't allow it basically. Generally speaking, they just will not allow it.
[00:13:09] So you're restricting the types of services you can offer. And as I've mentioned, you're restricted on the area. So all of those things where you've got quite high costs with low earning potential makes that my fifth con.
[00:13:21] So the positives. Let's talk about the positives. There are positives to owning a franchise, particularly if you haven't started a business because you just don't know what you don't know yet. And that's one of the most scary things and dangerous things out there, you will learn a lot over time.
[00:13:38] And it's only every now and then when I get a friend or something who contacts me and decides that they want free advice.
[00:13:45] They will ask questions, that just seems so obvious to me, but then I've got 10 years behind me of experience, or even longer than that, like I was doing stuff before that, but 10 years of a "proper business", behind me, where I can actually give that advice. It's quite scary, you can't know [00:14:00]what you don't know, and it's not a bad thing. there's no particular course you can go on to know all this stuff you just learn as you go along. You can get help, which I'll talk about later about how you can get help from different people. But the franchise is a good way to do that because you get an out of the box solution, which is my number one.
[00:14:16] You get an out of box solution. It should be a proven system in place. If you've got a reputable franchise that you're going to yes, they tend to cost more money, but if they're reputable, they will have everything in place that you really need the whole network, the whole rounded solution should be there for you.
[00:14:36] And when I'm saying proven systems, I'm not talking about just computer systems, I'm talking about systems in every area of how they work. So how they do the recruitment, how they do their marketing, how they do their sales, how the terms and conditions work for the customers, like what the policies are, how the payments work.
[00:14:55] But then also the different computer systems and then also the order suppliers and all of that, that will help you. They may have a call answering or an administration center or help with recruitment. Yeah, that's the number one is the out of box solution.
[00:15:08] Now I've mentioned earlier about there shouldn't be any overlap you should for that particular franchise for your franchise name, there shouldn't be any one trading in your area. And so you shouldn't be trading in anyone else's either. So that means you have a network of noncompeting franchisees to turn to for support so that other businesses, some of them aren't really experienced. Some of them will be less experienced.
[00:15:34] But they are there that you can turn to when you're facing problems. The franchise manual and training cannot cover every possible scenario. You will face unique experiences. But you are quite likely to find that someone in your network for a mature franchise has already faced them before and can help you like that. Versus you trial and error, trial, and error. You could spend a lot of money or potentially get yourself in a lot of trouble.[00:16:00]
[00:16:00] Or, piss off clients or lose your staff or anything like that. So many things can happen. So number two is the network of noncompeting franchisees to turn to for support.
[00:16:11] So number three is generally speaking you won't need to have the skills I'll have to manage or pay for separately your website or the it systems that you use within the franchise. Number four is the branding package and marketing materials. Those are available to you. They should be available to you. You should have a whole host of things. So if you are looking at a franchise, if you're comparing one franchise to another, have a look at, ask the franchisor. What's the branding package? What marketing materials do you have available to me?
[00:16:43] Aaron Henriques: Who are the suppliers of those? How much do they cost to produce? My franchise has suppliers that are the go-to suppliers. Now this can be a problem sometimes because, some franchisors can be insistent that you use their suppliers. And sometimes you're not quite sure the reason why. I'm talking down to account, like from accounting lawyers it could be people who are doing your printing.
[00:17:07] If you're doing SEO, which is quite often separate or Google ads, which also is quite often separate. If you're doing those things, some franchisors are insistent that you use a particular agency or company. Now there can be legitimate reasons for that. For example. If they're working on the website, you don't want a hundred different
[00:17:27] random digital agencies having access to the franchise website. So that control element and risk don't want a hundred different people working on the website. You only want one company, really one or two that have access, have the permission to be able to do that. But sometimes I do wonder about, is it because they're getting a bit of a backhand payment, like a referral fee or something like that? I don't know. But anyway, branding package and marketing materials are available to you or should be available to you. Just make sure they're there because they will be really useful for [00:18:00] you. It stops you having to actually produce those yourself.
[00:18:03] And my number five is that you've got a much greater likelihood of a successful small business. Of creating a successful small business if you follow their system, compared to probably 90% of other businesses who may start on their own with no previous experience or any guidance whatsoever.
[00:18:26] They end up failing. I think the average failure rate is 90% in the UK. It's similar in the United States and most businesses will fail. So I think being part of a franchise gives you that. It's not a guarantee. But it is a much stronger likelihood that you are going to have a successful business, a successful and profitable business that you can actually later down the line
[00:18:52] Aaron Henriques: Either take as residual income. Or perhaps you might expand the franchise areas. Like I have done buying different areas, which allows me to actually, it's no longer residual. It's not just like a supplementary salary. It completely pays for my life and allows me to do other things because. I have everything systemised and optimised using my own suppliers and all sorts of other things, because my franchise gives you that ability to do that. But others won't. So that's my number five is that you're so much more likely to be successful in this.
[00:19:25] So that's for you to then decide the pros vs cons.
[00:19:30] After all of that said personally, I'm not a fan of franchises. I'm not a fan of it. I think they're too restrictive and prevents you in the future. For example, if I wanted to leave my franchise today and start again, I probably could create a very successful in fact, far more successful domestic cleaning business than I currently have within my franchise, because I'm very much restricted in a number of areas.
[00:19:58] And particularly [00:20:00] geographically. Now the problem is, I couldn't do that. if I did do that in my case, I would have to give up all of my income from that business. Once I've given up that income,I'd have to find clients again and recruit and build the website and all that stuff wouldn't take me much time to do, I could get this done very quickly. The problem is that I would have to wait for six months, 12 months, whatever.
[00:20:27] Whatever the franchise agreement says, before I could do that without risk of being sued by the franchise. And I'd rather go at alone myself, I know that I don't particularly need my franchise. But I wouldn't be there with the knowledge I have if it wasn't for them to an extent. Not completely because there's a lot of stuff I bought into the franchise. And this is another thing that I didn't really point out as a con.
[00:20:56] But. if you introduce stuff, the franchise can adopt it as its own. And you cannot hold any sort of claim over that innovation you've done as such, because it's not yours. It is the franchisees innovation, despite the fact that you've come up with it. So that can be another problem. It's a legal problem that you'd go through. with your lawyer, if that ever cropped up.
[00:21:19] Now the biggest thing, as I've said earlier, you don't know what you don't know. I didn't know a lot of this stuff before. A lot of this stuff I've learned, not because of the franchise itself, not because of the franchise manual. Not because of the franchise training. It's through trial and error. So I've actually gone through a lot more trial and error than I ever thought I would until I landed on a system that works. Okay. And it's not, in line with my franchise ops manual, how I operate. But it is what it is, it's still under the franchise name. I could easily get to profit very quickly.
[00:21:52] This is really important for you to understand this. If you are looking at a domestic cleaning franchise or just starting a cleaning company on your own. A cleaning [00:22:00] company is essentially a recruitment company. You need to be really good at your recruitment. The clients are easy to come by.
[00:22:07] There are other elements as well, how you price, how you package, how you market, everything like that. The general principle is that you need to be shit hot at your recruitment because that is where you will fall flat. That is the sole reason why I've lost tens and tens of thousands of pounds over the years. Even just the last year, just not being able to recruit fast enough and have enough reliable staff. If no one wants to work, they apply, but they don't work.
[00:22:31] Aaron Henriques: They don't want to take the jobs. So that's, you need to get that really systemized and fluid. A nice, smooth process, which I currently have, which I'm really thankful for. And that's my own system, by the way, which hasn't been introduced to anyone else in the franchise. But anyway!
[00:22:46] Always do your homework first. Don't just see the opportunity and sign up to it without thinking about. how it can restrict your future plans. So you need to go out there and do your research. Think about the pros and the cons, go over them again. Rewind this video, go over the pros and cons again and decide for you,
[00:23:05] and your future, is it worth restricting yourself so much? For the short term sort of benefit of getting the training and the systems in place. Is it worth restricting yourself, particularly where you do have other options.
[00:23:19] So for me, if I was going to go back 10 years today, But I know what I know. If I was starting again, I'd probably do a few things here. I would find a helpful cleaning company owner who's been in the business for some time. They may have 50, 100, 200 staff or whatever like that. I would find one in an area that I'm not planning on competing in.
[00:23:43] Obviously, if you're going to ask for help, they're probably not going to want to help you to compete directly against them in their exact area.
[00:23:51] I'd explain to them. Look, I'm wanting to start a cleaning company and I don't know what I'm doing. I see that you're really experienced and I'd [00:24:00] really like your help for the next 4 to 8 weeks for a day a week or something like that, or half a day. Or be able to pick up the phone and WhatsApp or whatever.
[00:24:08] I wouldn't expect that help for free. I would probably be a bit more respectful of them and their expertise. They may not have a particular qualification, but they are experts in their field. If they've got to that stage and you are coming to them and they know infinitely more than you do at this stage. I show respect for their time and expertise because they've literally spent hundreds of thousands of pounds trying to grow and test things and work things out the hard way.
[00:24:35] Getting lawyers and accountants and all the HR advisors and all sorts of stuff involved over the years. I would offer to pay them. £10,000 to £25,000. Perhaps even a small percentage of the business, if you don't have a ton of cash available, make it a bit more creative... as payment for their advice and expertise.
[00:24:53] That might initially cost you the same, or even a bit more than buying into a franchise license, but, the benefits of that is you can expand without having to pay for extra licenses. You're not limited on where you expand because you don't have someone else next to you, who's already bought that area, so you can't buy their area unless you pay them a shit ton of money.
[00:25:18] Aaron Henriques: You're not restricted on how you innovate. You're not restricted on how you recruit, on what services you can provide. There's so many benefits to that. That I wished that I had been savvy enough back then to think of that and just think, do you know what, this £10,000 or £12,000 or whatever it was I was going to pay for the license. Why don't I just go and find someone experienced, give that money to them and say, Hey look, that's all my money. I've got a little bit left for startup capital. But I really need your help.
[00:25:50] One of the bigger things that you may find is they may turn to you and say, you're not ready yet because you don't have access to enough money or something like that, to be able to
[00:25:58] It's about to start when you're trying to [00:26:00] do. Because you may have been one of those people that have gone on a spreadsheet and put in some numbers, and it works out that after 12 months you are now £10,000,000 in profit, and you're going to be living on a beach somewhere. And I can guarantee you that is not going to happen.
[00:26:16] Anyway. So yeah, they're my five pros and cons of starting a domestic cleaning franchise. And that's it for now. Goodbye.